For Mining Companies, Productivity Is Key to Value Creation

BOSTON, MA--(Marketwired - May 28, 2014) -  Escalating costs, combined with declining commodity prices, have dramatically squeezed the margins of mining companies, forcing them to dig deeper to find sources of value creation. Given the uncertain economic environment, creating shareholder value will increasingly depend on enhancing productivity, according to a new report titled "Value Creation in Mining 2013: The Productivity Imperative," which is being released today by The Boston Consulting Group (BCG). 

The report dissects total shareholder return (TSR) of 42 major mining companies over a ten-year period. On the whole, the decade was lucrative; most companies delivered an average annual TSR of about 16 percent, while the top ten produced an average annual TSR of approximately 35 percent.

Mining companies were hit hard, however, after 2009. Even the top ten saw TSR fall by more than half, to 15 percent, and it was flat for the sector. The profitability pinch shows that mining companies cannot rely on costs to automatically contract when prices decline.

With the economics of mining under pressure, efforts to enhance productivity have emerged as primary levers mining companies can apply to create shareholder value. Gustavo Nieponice, a BCG partner and coauthor of the report, observes, "Common approaches -- such as reducing head count and deferring expenditures -- quickly reach their limit. A great deal of hidden value can be captured by using a systemic methodology that encompasses not only physical assets but also management systems and people."

MOST is a maturity-based, optimized, sustainable, and transformational framework designed to overcome the hurdles companies typically encounter in their productivity efforts. MOST is built on BCG's experience with more than 150 projects around the world. "Mining companies often struggle with productivity initiatives and do so for various reasons," says Alexander Koch, a BCG partner and coauthor of the report. "Sometimes managers pursue incremental improvements and miss opportunities to apply innovative technologies or new ways of thinking to operating an asset. Or, managers may ignore the organizational structure, culture, or management systems, all of which are needed to enable change." A systemic productivity initiative, the report shows, requires the combination of deep technical knowledge, an innovative mindset, and the rigorous application of change-management levers.

Now in its third year, the Value Creation in Mining report is sponsored by BCG's Industrial Goods practice. The report is part of BCG's Value Creators series, which uses BCG proprietary methodology to disaggregate the sources of value creation among top-performing companies throughout leading industries.

To download a copy of "Value Creation in Mining 2013: The Productivity Imperative," please go to www.bcgperspectives.com.

To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or gregoire.eric@bcg.com.

About The Boston Consulting Group
The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 81 offices in 45 countries. For more information, please visit bcg.com.

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